How AI Is Transforming Financial Services

November 29, 2018 by Renee Reyes

In the world of financial services, AI is no longer an experimental concept: Today, it’s a proven boon to both organizations and customers. In fact, AI is expected to increase the profitability of the financial services industry by 31 percent by 2035.

What’s more, that number is expected to increase significantly over the next few years. According to a report from Deloitte, robo-advisors are expected to manage more than $16 trillion in assets by 2025.

Risk Management

Risk management is of vital importance to financial institutions of any kind. Without it, organizations would be unable to clearly identify long-term objectives or comply with regulations.

Through AI and other forms of digitization, risk management can become even more precise, and banks are taking notice: According to McKinsey & Company, 70 percent of global systemically important banks (G-SIBs) state that a digital risk transformation is now in place.

This movement isn’t limited to the U.S., either: Chinese tech giant Baidu has started using AI to calculate the creditworthiness of individuals.

As an increasing number of organizations turn to AI for risk management, it’s likely that AI will become embedded in the roles of human risk managers. Risk and AI experts Daniel Wagner and Keith Furst explained that “AI may not replace risk managers, but risk managers who use AI will replace those who do not.”

Fraud Detection

With AI’s ability to rapidly and effectively analyze colossal amounts of data, it was inevitable that it would be used to detect fraud faster than humans ever could.

This has the potential to prevent billions of dollars in losses: According to a 2017 report from the American Banking Association, bank deposit account fraud cost banks $2.2 billion in 2016.

To avoid those losses, many banks are turning to AI.

The Wall Street Journal reported that Capital One is using AI to detect and prevent fraud in real-time, as well as to reduce the number of false positives. According to Nitzan Mekel-Bobrov, managing vice president of machine learning at Capital One, AI allows the company to be “protective, but not overprotective.”

In an effort to help customers, CitiBank has invested in AI that can quickly detect and alert customers of fraudulent or suspicious activity. Meanwhile, Bank of America is using AI to help employees detect fraud, too.

AI has already drastically transformed the financial services landscape and will undoubtedly continue to do so well into the future.

Marshall Choy

Marshall has overseen the go-to-market of dozens of industry leading enterprise hardware and software products. Previously, he was Vice President of System Product Management and Solutions Development at Oracle.